August 1, 2012

State sells $700 million in bonds at record low rates

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The Board of Public Works approved a bond sale Wednesday.

The Board of Public Works approved a bond sale Wednesday.

By Dana Amihere
dana@marylandreporter.com

The Board of Public Works approved the sale of more than $700 million in general obligation bonds Wednesday at historic low interest rates of about 2.16%.

Interest rates have been favorable in 2012 as March’s bond sale had the second lowest rates since the 1980s, deputy treasurer Susanne Brogan said.

Maryland’s maintenance of the highest possible bond rating by Moody’s Investors Service, Standard & Poor’s and Fitch’s Ratings was conducive to the competitive rates achieved in this bond sale.

“Today’s results were very satisfying,” Treasurer Nancy Kopp said. “Again, Maryland’s Triple AAA-rated bonds drew significant interest — and a very favorable and low interest rate.” She called it the “flight to quality” by investors.

“Maryland taxpayers benefit not only from saving millions of dollars because of the state’s low interest rates, but also from the investment in our infrastructure that these bond proceeds provide.”

Small, retail customers bought $26 million since Friday, before Wednesday’s bidding by institutional investors.

Bank of America-Merrill Lynch bought the lion’s share of both tax-exempt and taxable bonds at 2.2% and 0.4% interest, respectively. J.P. Morgan Securities bought about $190 million in refunding bonds which will allow the State to reduce the state’s debt service costs by an estimated $16 million by refinancing existing bonds at a lower rate.

Morgan Stanley and Co. won the bid for the remaining $15 million in qualified zone academy bonds with a 2.8% coupon 100% eligible for federal subsidy.

The Treasurer’s Office expects to hold another bond sale next February or March.

Here are more details about the sale.

As of June 30, Maryland had $7.5 billion in general obligation debt. Two of the rating agencies, Standard & Poor’s and Fitch, characterize this debt as “moderate” but as it has for several years, Moody’s Investor Services classifies Maryland debt as “high” relative to its 50-state medians.

Based on its state-debt medians, Moody’s July 18 report said Maryland ranks 18th for debt as a percent of personal income and 14th on a per capita basis.

  • Hungrypirana

    The bond sale itself sounds like good news.

    However, the interest rates Maryland secured are associated with the broader markets’ prevailing risk-off environment; the flip side manifests itself in lower returns on Maryland’s pension-plan investments.

    • Hungrypirana

      The reduced interest cost corresponding with $184 million Series E Refunding Bonds will cut the State’s debt service costs by approximately $16.1 million.

      I wonder how aggressive is Maryland with regard to refinancing some of the other $14 billion long-term debt?

  • Jefferson78

    Is this a press release for what a wonderful world it is in Annapolis? The state has to borrow the money to pay back the designated funds that have been raped for years and to toss pork around to O’Malley’s benefactors. Where is the other side of this story?

    The bond ratings is also equal to the willingness of the state to raise taxes and exact more fees on its population, this is mentioned in the ratings reports. Virginia and Delaware have AAA bond ratings too. What is their debt compared Maryland’s, and how do the fees and taxes compare?

    Borrowing money at all pushes the state closer to it’s debt limit,especially if you are borrowing every year.

    Expect more tax increases if we continue to borrow. Money at a zero interest rate still has to be paid back and we all know that revenue can come to a dead stop. What happens if the government 
    bureaucracy complex in DC runs goes broke? We can only ride on those coat tails for so long.

    This is shoddy, milk-toast reporting.

  • van halen not van hagar

    Anyone who buys a bond for 2% and at a premium price is nuts.

    •  Bank of America-Merrill Lynch, J.P. Morgan Securities,, Morgan Stanley & Co. are obviously nuts… I have no respect for them… and anyone who buys from them are also nuts and stupid…

  • Nancy K. Kopp is delusional…Read today’s ( 08/02 )Washington Times editorial on the Md. State Pension, she says that she can still get a 7.75 % rate of return…Where ?

    And now this…